Supreme Court: Record Labels Must Face Digital Music Antitrust Suit

Record labels finally will have to face an antitrust lawsuit that dates back to the early days of digital music, thanks to a Supreme Court order today. The high court declined to hear an appeal from the four major recorded music labels, asking the high court to throw out a lawsuit that claims the labels broke antitrust laws when they set a “wholesale price floor” of about 70 cents per track for two digital music stores that they created almost a decade ago, Pressplay and MusicNet.

The litigation consolidated 28 lawsuits filed between 2005 and 2006 that argued the labels’ first online music projects illegally raised prices for digital music, because the labels colluded to create a price “floor” that was around 70 cents per track. That was far higher than the 25 cents per track being charged by indie-music provider eMusic, at the time leading competitor to iTunes.

After the suits were consolidated, a federal district court favored the labels and threw out the lawsuit against them, but a New York appeals court reinstated the suit earlier this year (ruling via FindLaw). The labels’ lawyers appealed that ruling to the Supreme Court, which rejected their appeal today.

The high court only grants about 1 percent of the appeals it gets, so it isn’t surprising that the labels won’t get their case heard. But Supreme Court rulings in antitrust cases generally have favored defendants since the 1980s, so perhaps that inspired the labels to take their shot.

The labels haven’t lost their case; but today’s ruling means they will have to go ahead and fight it out in the lower courts, a situation they hoped to avoid.

In the appeals court’s decision to reinstate the case in January 2010, the judges quoted Warner Music CEO Edgar Bronfman — twice — saying that the labels were planning on opening a digital music store where they controlled the price, “because we are concerned that the continuing devaluation of music will proceed unabated unless we do something about it.” Those words may come back to haunt the labels.

Another interesting aside, eMusic — the indie-focused digital music service whose low prices were useful to the plaintiffs as evidence that the majors were overcharging — has changed its business model significantly in recent months, by striking deals to carry major label music and raising their prices accordingly. That change caused a rift with some popular indie labels.